American Express (AXP – Free American Express Stock Report), a Dow-30 component and one of the world's largest issuers of credit cards, has reported September-period financial results. For the quarter, the company achieved share earnings of $1.88, which were $0.10 above our estimate and represented a year-over-year gain of 25%. Following the news, shares of American Express are up modestly in pre-market action.
Additional details of the September quarter were, overall, quite positive. Total revenues net of expenses were $10.1 billion, or 9% higher than the previous year's tally. The healthy increase stemmed from higher card member spending from consumers, small businesses, and corporate accounts. Higher loan volumes and fee income also contributed to the top line. On the other hand, consolidated expenses climbed 8%, to $7.2 billion, which reflected higher rewards costs and marketing initiatives. Also, the provision for loan losses expanded 6%, to $817 million. The rise was attributed to growth in the loan portfolio and an increase in the lending write-off rate. That said, credit quality remains high and, in our view, not be much of a concern at this juncture.
Looking ahead, we remain bullish in regard to Amex's operations. As the last couple of quarters have demonstrated, management has done a fine job when it comes to expanding the company's footprint and revenue base. It has aggressively implemented marketing endeavors and technology improvements, which should continue to bear fruit. Just as important, the benefits of tax reform will persist. Over the past several years, Amex's tax rate has hovered in the low- to mid-30s, but in the September quarter, it was just 22%. All told, for 2018, we are adding a dime to our share-net estimate, which now stands at $7.40. That would represent a year-over-year gain of 26%. For 2019, we expect earnings to reach $8.15 a share.
As for the stock, over the past two years, it has easily outperformed the broader market, and is now trading within striking distance of its all-time high. The surge has, in our opinion, reduced the equity's investment appeal, though it still offers decent, risk-adjusted return potential to the 2021-2023 time frame.
About The Company: Established in 1850, American Express Company has grown to become a leading global payments, network, and travel firm. It operates through multiple business segments, including the Global Consumer Group and Global Business-to-Business Group. The company sold its AMEX Life business in October of 1995 and its American Express Bank in February of 2008. In mid-1994, it spun off Lehman Brothers to shareholders and ten years later, did the same with American Express Financial Advisors.
- Ian Gendler
